Multilateral Agreement on Investment: Implications for the United States

Publication Date: March 1998

Publisher: Library of Congress. Congressional Research Service

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Research Area: Banking and finance

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Abstract:

Ministers of the 29 members of the Organization for Economic Cooperation and Development (OECD) have struggled since 1995 to negotiate a Multilateral Agreement on Investment (MAI). Negotiations on many aspects of a final agreement have progressed rapidly, but OECD members have been unable to resolve numerous thorny issues before the latest deadline set for the OECD Ministerial meeting in April 1998. U.S. negotiators have indicated that they will not sign the present agreement without significant changes and oppose establishing another deadline.

As a whole, the OECD favors eliminating most of the national rules governing inward and outward direct investment. One notable exception would be exemptions for each country for industries or sectors that individual members deem to be of national security or of especial national importance. The United States also favors the national, or unbiased, treatment of foreign direct investment. At times, however, the U.S. commitment to this standard has waned as other policy objectives have taken precedent. Presently, the United States is leading the way for the other developed countries to adopt a more open standard with an agreed upon, and enforceable, dispute settlement procedure.

The OECD ministers' stated goal in adopting a MAI is to create a strong and comprehensive legal framework on foreign direct investment among the participating countries. This agreement is intended to be a stand-alone agreement and to be accessible to any country, developed, or developing, that is willing to abide by its precepts. Through the MAI, the OECD members also seek to reduce barriers and discriminatory treatment of foreign direct investment and to increase the legal security for investments and investors. To give force to this agreement, the MAI will be legally binding and contain effective provisions for settling disputes.

Despite overall progress on the agreement, a number of issues remain. In particular, negotiators have not agreed on how many and what type of exceptions nations will be allowed to take. The United States also is taking issue with the European Commission over its request for a broad exception for regional economic integration organizations. U.S. negotiators believe this type of exception will allow the Commission to exclude itself from parts of the agreement and to discriminate in favor of European Union member states.

U.S. negotiators also have to consider how the Clinton Administration will approach the issue of an MAI with the Congress. The Administration is concerned about the timing and approach of bringing the issue before Congress so that the agreement does not interfere with such other trade issues as the debate over fast-track negotiating authority. At the least, Congress likely will be asked to approve the agreement as a treaty. It is not clear if any additional legislative action will be required.